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MRED > MBA 8410- Real Estate Finance > Flashcards

MBA 8410- Real Estate Finance Flashcards

1
Q

APR is based on what?

A

Actual cash recieved

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2
Q

What are the 3 kinds of prepayment penalties

A

Declining prepayment penalty, yield maintenance and defeasance

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3
Q

Declining Prepayment Penalty

A

Percentage fee decreases each year payment is NOT paid early

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4
Q

Yield Maintenance

A

The process of discounting the lenders lost return to a current present value and paying a fee equal to the current present value.

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5
Q

Defeasance

A

Collateral substitution where the borrow via an intermediary buys government securities that produce the same cashflows to the lender than the loan would have produced.

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6
Q

Why is securitization good?

A

It allows people to free up assets, which spreads out the risk and creates more liquidity for the market.

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7
Q

What is the Maturity Mismatch?

A

70’s tilt where soaring inflation crushed demand, expected inflation drives interest rates up but the inflation on income had not inflated to the anticipated levels so loans were not affordable.

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8
Q

What did the Maturity Mismatch lead to in the 80’s?

A

The savings and loan failures which created a lot of regulation from the government.

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9
Q

Benefits of a mortgage broker?

A

Wide reach for shopping debt options, “hand holding”, scrubs data for best presentation

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10
Q

Cons of a broker?

A

Lack control as all decisions are by the lender, costs are usually higher because of “middleman” prices

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11
Q

Benefits of a Banker?

A

Much more decision making and influencing that broker, costs can be lower

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12
Q

Cons of Bankers?

A

Typically do not offer “hand holding” and only offers debt options for the system in which they are employed.

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13
Q

What is securitization?

A

The process of selling the CMBS off.

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14
Q

What is the biggest difference between Freddie Mac and Fannie Mae?

A

Fannie SHARES the long term liability while Freddie TAKES the long term liability.

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15
Q

What are benefits to CMBS?

A

Relaxed underwriting process and sponsorship requirements, non recourse.

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16
Q

What are lenders looking for?

A

Experience, good balance sheet, and proper finances.

17
Q

Who are the sponsors of the loan?

A

Developers or people who have more skin in the game and have majority ownership in the LLC of the project. Usually have more than 25% invested.

18
Q

If you are looking for a lender with max leverage and LTV which lender will help?

A

Commercial Banking, and CMBS

19
Q

Life Company Agencies?

A

Low rates and non recourse, but generally only go for “trophy” properties

20
Q

Commercial Mortgage Backed Securities

A

Usually fund a lot of projects, relaxed sponsorship requirements, securitization process can be lengthy due to documentation.

21
Q

Components of Commercial Banks Lending Process?

A

All property types, lower LTV’s

  • offer construction financing
  • rates are typically higher
  • recourse loans
22
Q

Components of Public Finance

A

Low interest rates, legal intensive with higher upfront costs, but tax equity is essentially free money.

23
Q

What does the cap rate measure?

A

The overall riskiness of a deal.

24
Q

Why can a lender hold back funds at the end of the underwriting

A

Based off of evidence EAR (Environmental Assessment Report) and PCA (Property Condition Assessment) that can hold off of money to be paid out.

25
Q

Discounted Cash Flow Method or Direct Capitalization Method?

A

DCF because the cap rate is not exactly accurate as the NOI could be very different in year 1 vs year 2 as DCF takes into consideration OPERATIONAL CHANGES throughout the course of a project.

26
Q

Why do lenders care about a deal that has a good debt to coverage ratio from a maturity standpoint?

A

Because when it is time to refinance a loan maturing next year it will have a lower level of concern with one that is 8 year away.

27
Q

What are the 3 primary approaches to valuation?

A

Income (Commercial), Cost Approach, Sales Comparison (Residential)

28
Q

What services do RE Financiers use?

A

CoSTAR/REIS

29
Q

What does an inverted Yield Curve mean?

A

A potential recession.

30
Q

What are lenders looking for on the balance sheet?

A

Liquidity and Net Worth, the rule of thumb is that you need 2x the net worth for the property value or the loan amount. For liquidity a 12-month reserve is required for a worse case scenario.

31
Q

Borrowers, Appraiser, Lender (Underwriter) how do their views differ?

A

Borrower is looking at the present and future, the appraiser has an unbiased view/looking forward , the lender is looking at past history

MRED (6 decks)

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